Leaders & Laggards – April 2017

Leadership Laggard

Damn, United. Just last month, we upgraded your abysmal 2015-2016 shenanigans to an “almost.” And this is how you repay us? With that colossally bone-headed move?

Assuming our readers haven’t been living under a rock, or in Tibet, or someplace where no signal of any kind could penetrate the local ether, United Airlines screwed up. In a nutshell, they tried to remove a passenger after confirming his boarding, and surprise! The passenger didn’t want to get off the plane. United gate agents must have decided that “no doesn’t mean no,” so they called the gestapo airport security, who apparently decided “Hey, let’s just drag him off…?!”

And the whole thing was recorded. Not much wriggle room for any sort of spin story-telling. In fact, I won’t insult you by showing—for the 2 millionth time—that video. Just picture it in your head.

It’s received so much publicity, we weren’t even going to address it here. Sort of like the “that’s just too easy” line of thinking. But then we realized… the lesson here isn’t about some gate agent’s poor judgement, or even the idiot security dude’s MMA moves on an elderly doctor. I won’t even raise the ire of many reading this by reminding that that same elderly doc should have disembarked when ordered to do so and fought his fight later.

Nope, this fiasco is all about—and only about—leadership. In this case, failed leadership. For example:

Someone screwed up way back when. Allowing the aircraft to fully board before saying “Hey, wait a minute, we’ve got to get these four crew members on board.” Mistake #1, and the lack of a process, or lack of a followed process, is a leadership issue.

Someone decided those four United employees were worth removing paying passengers from an already-boarded aircraft. That sort of decision-making comes from the belief they will be supported by leadership. That’s mistake #2, and another leadership issue.

Seriously, either that one security guy has serious issues, or he was trained so poorly he thought standing on another seat to remove a seated passenger with his lates MMA moves was the next step in the checklist. Either way, a leadership misstep that provided the impetus for mistake #4.

The only truly unforced error during the entire situation: Munoz’s comments. First, supporting employees in the face of that video without further investigation, then with the horrendous “reaccomodating” remark, then finally with a too-late sincere-sounding apology.

Look, I get it. Munoz was left a pile of dung from Smisek’s departure. I really do get it. He likely has invested hundreds of hours, if not more, in trying to improve relationships with various categories of employees, agents being just one of them. I get all that. But as CEO of a customer-facing organization, you don’t get to make knee-jerk statements. Ever. When you unwisely do so, it’s on you.

As the other Kevin’s mom likes to say, “You kind of brought that on yourself.”

Oscar Munoz is April’s Leadership Laggard. And the vote wasn’t even close…

CEO John Stumph blamed the creation of over two million fraudulent bank and credit card accounts on individual rogue employees – more than 5,300 of them who were summarily fired.

Claiming that “there was no incentive to do bad things,” Stumph defended the head of community banking, Carrie Tolstedt, as the “standard-bearer of our culture” and justified her $125 million retirement payout.

Turns out he also exercised 1.5 million stock options (worth just $83 million) the month before the company was hit with $185 million in fines for the deceptive practices.

Now:

Stumph is now the ex-CEO, Tolstedt got fired instead of retired, three other senior executives were fired for cause, eight remaining senior executives forfeited their 2016 bonuses, and Wells Fargo’s reputation stopped its free-fall.

Unsurprisingly, it turns out Mr. Stumph wasn’t paying very close attention to the community banking business unit or its Senior EVP. Last week, Wells Fargo released the report of its directors’ investigation into the cross-selling practices, laying the blame squarely on Stumph’s blind spot when it came to Tolstedt, Tolstedt’s controlling management style that actively discouraged dissention, a couple of dishonest regional VPs, and lax corporate oversight.

The extremely decentralized organizational structure favored the business units and led to the creation of fiefdoms in the company with “substantial deference” to the feudal lords and ladies. Without effective checks and balances, Community Banking was able to mask the signs – like high attrition and under-funding of new accounts – that something was seriously amiss. Changes in the reporting chain and new corporate control functions introduced by the Board should realign accountability and responsibility.

The Board allowed itself to be misled about the extent of the problem, but they get credit for bolstering their oversight responsibilities, creating an Office of Ethics, Oversight and Integrity (albeit, just after the nick of time), and for setting aside funds to make it right by the customers rather than forcing arbitration. And, while it’s not all about the money, the $180 million they clawed back from ex-senior executives and withheld from current members of the Operating Committee will almost cover their fines.

As tempting as it may be for some to paint the new CEO, 29-year Wells Fargo veteran Tim Sloan, with the same brush as Stumph, but Sloan hasn’t shied away from accepting responsibility for himself and the rest of the senior leadership team, he’s engaging with Wells Fargo employees in an effort to regain their trust, and so far he’s re-hired back about a thousand of the 5,300 employees that were fired.

The Wells Fargo scandal was a direct result of failed leadership, but leading is a journey, not a destination. They’re not out of the woods yet, but we’re definitely seeing signs that the Wells Fargo senior leadership is serious about rebuilding lost trust with their customers and shareholders. We wish them well at the annual stockholders meeting next week.

Net Result: While John Stumph’s place on the Laggards list is secure, Tim Sloan and the current Wells Fargo senior executive team are looking more like Leadership Leaders every day.

He mentioned several things they should have been doing already. The good news is that they certainly seem to be doing those things now. Watson outlined his plan by saying they needed to focus on five things:

First, finish project under construction which reduces spend and brings on new revenue.

Third, lowering operating expenses by getting more efficient at everything.

Fourth, complete planned asset sales.

And finally, do all of this while operating safely and reliably.

Frankly, in all fairness to Watson and Chevron, they knocked this outta the park. In 2016, Capex reduced by over $11B; 2017 spend will be another $2.5B less, and those projects have a two-year horizon for cash flow. Revenue is up $8B, and earnings up almost $1B; Opex and SG&A down over $2.5B. They maintain over $7B in cash, the stock price has more than recovered from the 2015 decline, and they continue to outperform every competitor.

And if simply brilliant financial and operating results aren’t enough, there’s this: John Watson says the reason he has stayed with Chevron for 36+ years, is “every time I said, ‘Well, gee, I wish I could do something else,’ I was moved on to some other part of the company.”

“If you have to leave a company to get a new challenge, I think that’s a really sad statement,” Watson says. “I think it’s a missed opportunity for some companies to not try to retain their workforce and keep them stimulated over time.”

True words—we would do well to replicate that thinking in other organizations.

Sort of a “Heckuva job, Brownie,” only this time for real. Way to go, John… good on ya. You’ve led Chevron from a 2015 Milquetoast to a 2017 Leadership Leader.

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